September 10, 2013

Investigation Spurs Swift Response on Tax Sale Reform

Updated at 4:05 p.m.

A recent investigation into how the District of Columbia manages the sale of properties with delinquent taxes sparked calls for action this week by local politicians-more than a year after a coalition of lawyers and advocates pushed for reform.

The Washington Post published a series of articles this week highlighting problems with the tax sale system that forced residents into foreclosure over relatively small amounts of unpaid taxes. Mayor Vincent Gray (D) and other council members expressed shock at the report's findings, calling for emergency legislation.

Lawyers involved in the push for reform say they hope attention generated by The Washington Post leads to legislative changes. Attorneys who represent the buyers in tax sales, on the other hand, have warned that adopting some of the proposed changes, such as a cap on attorney fees or lowering interest rates charged to delinquent taxpayers, could scare away investors who bring in revenue for the city.

When property owners are delinquent on their taxes, investors can bid on those tax certificates. Following a six-month waiting period, the investor has another six months to sue the property owner in District of Columbia Superior Court. The owner can face foreclosure if they don't redeem their property, which involves paying the taxes owed, plus interest and the investor's attorney fees.

In April 2012, Legal Counsel for the Elderly and Crowell & Moring led a coalition of law firms and homeowner advocates calling for reform, saying existing laws didn't do enough to protect the rights of homeowners and required many, especially elderly and low-income residents, to pay much more than they owed in taxes to redeem their home. The coalition—the Alliance to Help Owners Maintain Equity, or AT HOME—sent a
letter to Gray and members of the D.C. Council.

A spokesman for Gray, Pedro Ribeiro, said the mayor never saw the letter because it was diverted to the city's Office of Tax and Revenue; Ribeiro said the letter should have been sent to an executive branch office that handles policy matters as well. The Office of Tax and Revenue
replied to the coalition's letter in June, indicating it was sending a copy to the mayor's office, but Ribeiro said they had no record of receiving the response.

In November, D.C. Councilmember Jack Evans (D-Ward 2) introduced legislation based on the coalition's recommendations, but the legislative session ended before the council took action. Evans introduced a similar bill in January, but no hearings were scheduled to date.

Yesterday, The Washington Postreported Gray and Evans were in favor of emergency legislation aimed at temporarily fixing problems identified by the Post's investigation. In an interview today, Evans said he planned to introduce a measure next week that would increase the tax sale threshold to $2,000, exempt senior, disabled persons and veterans, and cap attorney fees at $1,500.

"We're hoping that there will be hearings on the legislation, we hope that it'll pass," said Amy Mix, a supervising attorney for the Legal Counsel for the Elderly, a nonprofit legal services arm of the AARP. Crowell & Moring counsel Todd Rosenberg said the coalition was hoping the Post feature would lead to swift action. "We're excited to see that the mayor and the council are reacting to the stories that have come out and we're looking forward to working with them," he said.

Issues identified by the articles and the letter sent last year included the disproportionately large sums homeowners had to pay to redeem their homes, lack of notification about the tax sale process, loss of equity in property, and errors that resulted in homes being sold even after taxes were paid.

A spokeswoman for the Office of Tax and Revenue, Natalie Wilson, said examples cited by the Post of residents who lost their homes over small amounts of unpaid taxes took place before the office adopted a $1,000 threshold for tax sales in 2008. After receiving the AT HOME coalition's letter last year, the office agreed to start sending post-sale notifications to property owners, in addition to pre-sale notices required by D.C. law.

Certain changes proposed by the coalition, such as capping attorney fees and lowering interest rates, may face resistance from lawyers who represent investors. Legal fees can add up because tax sale cases "are often complex and each case has its own idiosyncrasies and demands," Roy Kaufmann of Jackson & Campbell said in an email today. If the city created certain protected classes in the tax sale process, Kaufmann said investors shouldn't be held responsible if the city voided those tax sales later.

Lawyers on both sides of tax sale cases did share common ground in one area: praise for Superior Court Magistrate Judge Joseph Beshouri, who handles the calendar of tax sale cases. Mix said Beshouri frequently referred cases to her office if a homeowner needed counsel, and Kaufmann said Beshouri is "cautious, deliberate, and exacting," granting extensions to make sure owners had a chance to redeem before losing property. Beshouri declined to comment.

A spokesperson for U.S. Sen. Mark Begich (D-Alaska), who chairs the senate subcommittee that oversees District of Columbia affairs, was not immediately available for comment.